Warning signs when there is volatility in the market
- Friends are considering day trading as a career choice. It’s under “Investing is easy”. Everyone can do this. I don’t need an advisor anymore.” When people start thinking that all stocks go up at different speeds, that’s a bad thing.
Understand: There is a buyer and a seller in every transaction. The person who thinks this is a good time to get into the stock is matched to the person who thinks now is a good time to sell.
- Financial advisors are now the desired life partner option. You must have heard the old jokes of marrying a doctor or a lawyer. There was a time when financial advisors were considered vendors. Insurance agents were placed in the same category. They were not professionals. That’s what’s changing.
Understand: This warning light is not flashing red yet. Several TV series until portraying financial advisors as villains. They are not yet pure and desirable like suckers.
- The term “new economy” is used in an award. That’s what we talked about before the 2000 dotcom crash. Price-to-earnings ratios were no longer important. If the company had a great idea, it didn’t matter if they weren’t making money.
Understand: It all comes down to making money and understanding.
- People are buying things they don’t understand, I heard that some German banks used a rule. They wouldn’t lend money for any property (or business) that you couldn’t see from the top of the church steeplechase. The concept was that they invested in their local market where they knew the economy, business conditions and the people involved.
Understand: Investors need to know the sequence of “what has to happen” for this investment to work. When people buy and can’t explain the reason, it’s a bad sign.
The stock market has often been compared to a rubber band. It can be stretched in one direction or another, but once you let go, it springs back to its original size. This can be positive and negative because when the market is down, buyers often come. The same happens to profiteers when the market is high.